The 2K Challenge

Indian Smartphone Makers Asked to Aim Low

India’s economy is still very much cash-based, making the government’s goal of eliminating the circulation of banknotes of large denominations particularly difficult. Without a fair substitute to paper money, cash will continue to be king in India despite the withdrawal of certain notes in November 2016.

Secure mobile payment services do work in India, including several that only require a feature-phone, but the government is especially encouraging the use of its own service BHIM, or Bharat Interface for Money. It’s an app-based approach that connects users’ bank account with their phone number supporting immediate money transfers.

The main barrier to BHIM is the number of smartphones in use in India — about 300 million. That’s a big number, but with more than 1.2 billion people, India is a huge country. About 25 percent of the population use a smartphone, and mostly the middle and upper classes.

The government of prime minister Narendra Modi recently met with top Indian smartphone makers including Micromax, Intex, Lava and Karbonn, challenging them to develop smartphones that retail for 2,000 rupees (about $30). In order to optimise the mobile payment experience, the phones need to have a fingerprint sensor and the ability to read QR codes. The government’s aim is to allow financial transactions from anywhere, and fingerprint scanning will enable payments based on Aadhaar — a government programme that assigns a unique identity number to residents of India — in the future.

The government is asking a lot. Pushing a bill of materials for such a smartphone below $30 is more of an impossibility than a challenge, at least for the time being. It is possible to find Android smartphones in India now for about 2,000 rupees, but these are rudimentary devices. To meet Mr Modi’s smartphone feature requests, manufacturers would have to swallow the addition to the bill of materials eliminating already hair-thin margins.

The road to a cash-free society won’t be made with losses. The government is exploring ways to help the digital economy grow in rural areas where 70 percent of the population resides. Its ambitions are understandable, but currently unrealistic.